The European Central Bank will cause strong fluctuations (Daily analysis 10.09.2020)

In this relatively quiet week, when it comes to macroeconomic events and publications, the market focuses on today's events related to the European Central Bank. Around 2:30 p.m., we can observe a significant increase in volatility.

Thursday's morning trade brought a slightly weaker dollar, a continuation of the movement we have seen since yesterday afternoon. This is a reflection of media reports that the message from the European Central Bank today may indicate a limited need for further monetary stimulation.

Will the President of the ECB confirm the concerns about the euro's strength?

The main currency pair's quotations, i.e. EUR/USD, increased to about 1.1840. These are not big changes, about 0.3% above yesterday's closing level, but the EUR/USD exchange rate moved away from the monthly lows of about 1.1760, which in turn could open the way for further appreciation of the US currency.

However, today's ECB-related events (statement and press conference) may be particularly relevant to the euro and the dollar. No major changes in monetary policy are expected, but a little more attention than usual can be devoted to the exchange rate. Already more than a week ago, ECB members expressed their concerns about the euro being too strong, which may hamper the growth of economic activity.

This was when the EUR/USD exchange rate was about 1.20. However, if the President of the ECB, Christine Lagarde, confirmed these concerns today, the common currency could find itself under significant supply pressure while strengthening the dollar. This would also not be the best scenario for the zloty, which has been negatively affected in the previous days by increased risk aversion in connection with the sale on the equity markets.

What would it mean for the zloty?

Adding to this the potentially fast-appreciating dollar, the pressure on the Polish currency would only increase. However, the President of the ECB will most likely be very cautious about the exchange rate, trying to speak in such a way as to limit further potential appreciation of the euro. Nevertheless, the fluctuations on the currency market around this event may increase significantly.

Even before midday, the zloty's quotations against the euro remained stable. The EUR/PLN exchange rate fluctuates around 4.45, while the USD/PLN exchange rate oscillates around 3.76 and the GBP/PLN exchange rate around 3.90 due to the fact that the sale of the pound has stopped. The CHF/PLN exchange rate rose to 4.14 and remained at the upper level since July 20, also responding to the global appreciation of the Swiss franc against both the dollar and the euro.